Does a VC’s brand matter?(cdixon.org)
cdixon.org
Does a VC’s brand matter?
http://cdixon.org/?p=2079
9 comments
Well known VCs also matter in doing deals. Big companies will now return your calls.
I've heard this phenomenon mentioned many times, but I've never seen any convincing explanation for why this happens. When you phone a big company, do they look you up on crunchbase to see who invested in you? Do they simply respond more to startups which have had the large amount of media attention which comes with being funded by a high profile VC? Do they have their arms twisted behind the scenes by said high profile VCs? All of the above?
I'm sure this is something you've thought about, so I'd love to hear what explanations you've come up with.
I'm sure this is something you've thought about, so I'd love to hear what explanations you've come up with.
- the vc's themselves will have large person networks if they're working at a top tier VC. more often than not, if you need a deal done with company X they'll have a personal connection to someone there. this isn't a vc-specific value-add
- top tier vc's don't hold just young startup investments. they'll have mature companies, who have likely done deals with some of the big companies you're looking to do deals with. again leveraging their network.
- if a top tier vc has invested in you, most big company execs will assume you're not going out of business anytime soon (right or wrong that's their mindset - it's amazing how corporate types grab for blue chip names/brands at every opportunity) making them more comfortable doing business with you and not big company Y
- top tier vc's don't hold just young startup investments. they'll have mature companies, who have likely done deals with some of the big companies you're looking to do deals with. again leveraging their network.
- if a top tier vc has invested in you, most big company execs will assume you're not going out of business anytime soon (right or wrong that's their mindset - it's amazing how corporate types grab for blue chip names/brands at every opportunity) making them more comfortable doing business with you and not big company Y
The VCs do the intro.
I have heard many people say this. But to me it means one of two things: either the VCs are very good at taking credit for work done by the entrepreneur, or the entrepreneur is failing at their job. As a founder, it is my job to be the best in the industry, and to have others in the industry introduce me as such to potential customers. VCs are a distant second in importance (but not self-importance).
VCs are market makers; they facilitate their LPs investing into their portfolio companies. Brand is applied in two directions; upstream to their LPs (who are upstream of them in the capital supply chain) and to prospective investment opportunities (who are downstream of them in the capital supply chain).
From Upstream: Yes, brand matters. Having good returns is important. Many LPs also have LPs themselves; being an investor in a good fund makes explaining things that much easier. The "Nobody got fired for buying IBM," issue exists everywhere in capital supply chains. Dozens of LPs enjoy casually dropping, "We invested in Google."
For Downstream: VCs manufacture capital returns for their investors. They source inputs, private companies, in which they invest, oversee operations, and assist in the creation of exits. Having a lower cost of private company acquisitions is similar to any manufacturer who has a lower COGs, or an IT group who is able to design and build more efficiently. So, yes, brand matters there too.
In a community that has experience with VCs, brand matters less, just as it matters less in any community that is more focused on results rather than karma. The role of brands in VC, regardless of the directionality in which it is being evaluated, is similar to any other marketplace. The complexity comes in realizing that brand flows in two directions.
I wrote a longer comment on upstream / downstream capital flows here: [http://web.mac.com/flybrand/fredlybrand/Blog/Entries/2008/9/...]
From Upstream: Yes, brand matters. Having good returns is important. Many LPs also have LPs themselves; being an investor in a good fund makes explaining things that much easier. The "Nobody got fired for buying IBM," issue exists everywhere in capital supply chains. Dozens of LPs enjoy casually dropping, "We invested in Google."
For Downstream: VCs manufacture capital returns for their investors. They source inputs, private companies, in which they invest, oversee operations, and assist in the creation of exits. Having a lower cost of private company acquisitions is similar to any manufacturer who has a lower COGs, or an IT group who is able to design and build more efficiently. So, yes, brand matters there too.
In a community that has experience with VCs, brand matters less, just as it matters less in any community that is more focused on results rather than karma. The role of brands in VC, regardless of the directionality in which it is being evaluated, is similar to any other marketplace. The complexity comes in realizing that brand flows in two directions.
I wrote a longer comment on upstream / downstream capital flows here: [http://web.mac.com/flybrand/fredlybrand/Blog/Entries/2008/9/...]
This question could be posed "Does a x's brand matter?" All else being equal, yes. However, in the case of an example like Sequoia, their brand isn't some magical thing achieved through advertising. The brand recognition is a result of having kicked ass early on. If you end up investing in the next Apple, Google, or Youtube, you will also end up having a good "brand."
I find this distinction important. If you're looking for investment, follow the same strategy. Kick ass first, then find a good VC. If you're a musician, play good music, then get a record deal (or skip them altogether).
I find this distinction important. If you're looking for investment, follow the same strategy. Kick ass first, then find a good VC. If you're a musician, play good music, then get a record deal (or skip them altogether).
There's probably a good correlation between their brand and what they can do. Sequoia, Kleiner, Accel, NEA, and Benchmark have a hell of a brand. That brand correlates to their network and capabilities. The same can be said on the angel + seed stage side: Ron Conway has a name brand and the connections to go with it. Same with USV + First Round.
Getting early adopting customers might be easier if you are funded by a big VC and your target customer profile is quite SV centric.